Cancel mortgage Protection Insurance ( life insurance )

iainBB

My friend has a 30 year mortgage one year now, when the year was up they cancelled their mortgage protection insurance.

Because the bank was an “Interested party” on the policy they were informed on the change to his policy. My friend got a letter from the bank saying it’s important to have this policy … its needed… . .you must get life insurance within 14 days.

They rang the bank up and said they do not want it and they will not get a new policy. After a lot of talk by the bank. In the end the bank is going to do nothing about it, they are not going to take the house.

I fully understand that my friend is losing the protections of the policy they had but other than the insurance policy what can the bank do about it.

The conditions of getting the mortgage where that they had it in place along with house insurance. But what can the bank do if he cancelled it. Could they take the house or is it all bark and no bite.

In this case one of the major banks in Ireland is going to do nothing about it.

TheDriver

They should do something about it. However lets say he has partner kids etc in future, he dies and suddenly the debt is with them. Also if he gets sick it will be quite expensive to sign up then.
Its like house insurance, it's there for our protection

iainBB

TheDriver wrote: »

They should do something about it. However lets say he has partner kids etc in future, he dies and suddenly the debt is with them. Also if he gets sick it will be quite expensive to sign up then.
Its like house insurance, it's there for our protection

Other then the insurance aspect which not relevant for him .what can the bank do ?

Fully aware of the loss of protection from loss of policy but he is over insured . What can the bank do. ?

ted1

iainBB wrote: »

Other then the insurance aspect which not relevant for him .what can the bank do ?

Fully aware of the loss of protection from loss of policy but he is over insured . What can the bank do. ?

They can call in the loan and force the sale of the house. The T and C say you must have mortgage protection, not having it breaches the T and C. Therefore they can ask for the mortgage back .

How is he over insured ?

antoinolachtnai

ted1 wrote: »

They can call in the loan and force the sale of the house. The T and C say you must have mortgage protection, not having it breaches the T and C. Therefore they can ask for the mortgage back .

How is he over insured ?

As I understand it there is a legal requirement to have a condition in relation to life insurance in place.

If the OP's friend has other insurance he may be able to have the bank's interest noted and this might satisfy the requirement.

It is unlikely to lead to foreclosure but it is extremely unwise not to have life insurance in place to the bank's satisfaction in place. If nothing else it undermines the value of his word.

micar

Crazy to cancel the life cover. God forbid if anything should happen to him. Those left behind would be in left in a bad place.

Decreasing term assurance/mortgage protection is relatively cheap.

It's a risk I would never take.

iainBB

In this case the bank did nothing. I was very surprised at that .

His mortgage protection is useless and they lied on the form so it's dead money that will never pay out no matter what. That is how bad he lied.

micar

As is........ There was non disclosure....not a very clever thing to do.

BTW....I work for a life company..... Claims are declined or reduced payments are paid out due to non disclosure....even if the cause of death was no related to a pre existing non disclosed condition

iainBB

micar wrote: »

As is........ There was non disclosure....not a very clever thing to do.

BTW....I work for a life company..... Claims are declined or reduced payments are paid out due to non disclosure....even if the cause of death was no related to a pre existing non disclosed condition

Either that or no mortgage so not stupid at all. But paying in life policy for 30 years that may never pay out in the first place. That is a different question

That is beside the point the major bank did nothing not call in loan or Fine them .nothing.

Wabbit Ears

This is an excellent story about how we ended up in this mess in the first place.

30 year commitment to buy a house, cant and wont commit to paying insurance on the house, Bank lent to him anyway, everyone in the story is a fool.

micar

iainBB wrote: »

Either that or no mortgage so not stupid at all. But paying in life policy for 30 years that may never pay out in the first place. That is a different question

That is beside the point the major bank did nothing not call in loan or Fine them .nothing.

Seriously!!!!!! Many people have the same attitude to life cover.

It's the same as car insurance or home insurance....you pay your premiums but hope you never have to make a claim.

But people seem to have a different attitude to car or home insurance.

They all cover different types of risk but should all be viewed equally as important.

Carawaystick

Life cover. You have to pay it, unless you're too old then you don't cause it'd be too dear...


Banks only make you get it to avoid bad pr when they f00k your widow over.

uck51js9zml2yt

It clears the mortgage in the event of his death. How does he know it won't happen.Very foolish.

I had serious illness cover. I was going to cancel it but my broker convinced me otherwise.
6 years later I claimed on it.

The_Conductor

Let me get this straight- he lied at the outset when securing life assurance.
Accordingly- he knows the policy would be voided, were he ever to need to call on it.
So- he thinks its dead money- and for this reason has cancelled the policy?

What normally happens in a case like this- is the person goes either to the original insurance company- or more probably another company- and takes out a new policy- disclosing all pertinent information.

A medical and/or doctor's reports may be sought (its normal)- and depending on the nature of pre-existing conditions etc- the policy receives a loading- or could potentially be made so prohibitively expensive that its a defacto decline.

In my own personal case- I have a 100% loading on my policy because of severe Crohn's Disease- and my wife (a cancer survivor) has been declined cover with all the major companies here. For this reason- my bank lent solely to me- and not my wife- however, she has a legal interest in the family home (obviously).

Life Assurance- is an unfortunate necessity- and it is incredibly imprudent to play mind games such as your friend has done.

Its not unheard of for banks to reassess loans on the basis of issues like this- and impose a higher interest rate- in recognition of the lesser security attached to the mortgage.

I can't get over how ridiculous your friend is- life assurance is there to protect those he leaves behind, in the case of anything untoward happening to him- its an insurance product- its insuring against events you hope never will happen- your friend seems to have some weird notions of what its purpose is.

Peregrinus

The_Conductor wrote: »

Let me get this straight- he lied at the outset when securing life assurance.
Accordingly- he knows the policy would be voided, were he ever to need to call on it.
So- he thinks its dead money- and for this reason has cancelled the policy?

What normally happens in a case like this- is the person goes either to the original insurance company- or more probably another company- and takes out a new policy- disclosing all pertinent information . . .

Most likely he lied because if he told the truth he would be uninsurable, or insurable only at a price he was not prepared to pay. Which of course concerns the bank, since he is at higher risk of death than most lenders.

The bank hasn't called in the loan, which they could have done. But that really is the nuclear option; he banked on them not doing it, and he was correct.

Is there anything else they can do? Yes, they can raise the interest rate, on the basis that they are carrying a higher risk. They can do that now or later. And they can (and certainly will) decline to increase the loan, or grant any extension of the term, or (of course) grant any new loan. (Of course, if he expects never to need any further credit, that won't bother him.)

iainBB

Thanks All

Some good points here

I know this guy well. he has other passive income that produced money that covers 60% of the mortgage each month regardless if dead or alive.
He has additional life cover from one of his jobs which pays 5 times salary if the worst happened to him.
He has other forms of income that will also help so that is why he cancelled his insurance his is very good with money.

He recently got his mortgage interest rate reduced because of house price increase fell below LTV of 60% and over payments to loan.

He did not want the mortgage protection but it was a requirement to get approved for the loan.

He had to lie on the insurance from as for medical reasons would not get insurance or the cost of the insurance would be way to expensive to have taken out a policy.


So in reality:
The bank could increase the interest
Call in the loan and cause the sale of the house
Refuse an extension of the loan in the future.

He seems to have called his bluff and won in this case.
They are saving about 400 euro a year which i is going in to a good investment.

Again we all all fully aware of the potential loss of his protections from the cancelling of mortgage protection insurance. which may or may not pay out.
If it did pay out would most likely be a reduced payment due to this misinformation on the application.

It would be better to take that money and get a insurance policy that would pay out and he would not have to lie on such as income protection insurance.

Peregrinus

iainBB wrote: »

Thanks All

Some good points here

I know this guy well. he has other passive income that produced money that covers 60% of the mortgage each month regardless if dead or alive.
He has additional life cover from one of his jobs which pays 5 times salary if the worst happened to him . . . He recently got his mortgage interest rate reduced because of house price increase fell below LTV of 60% and over payments to loan.

OK. These are possibly all factors which influenced the bank in its decision not to enforce the terms of its mortgage. Another borrower, less happily situated financially, might not have had the same response.

iainBB wrote: »

He did not want the mortgage protection but it was a requirement to get approved for the loan.

He had to lie on the insurance from as for medical reasons would not get insurance or the cost of the insurance would be way to expensive to have taken out a policy.

He would have done better to explain the problem to the bank at the outset and negotiate a waiver of the life insurance requirement. That's what I did, which means I saved even more insurance premiums than he did, plus I didn't expose myself to the risk that the bank would get all judgy when I cancelled the insurance and possibly enforce my mortgage terms against me.

iainBB wrote: »

It would be better to take that money and get a insurance policy that would pay out and he would not have to lie on such as income protection insurance.

If he could get a policy that would pay out, he wouldn't have had to lie to get the mortgage protection insurance; he could have just got a valid policy in the first instance.

I'm not saying that he won't use wisely the amount he has saved by cancelling the policy, but from the circumstances you describe he won't be able to use it by taking out a valid insurance policy for a premium that he thinks represents good value.

ted1

Many people do have life assurance that covers x amount in case of death.
if i die i know that the mortgage will be cleared, that that then leaves the second policy of 4.5 times my policy for my Wife and kids to live on.

The two policies serve different needs. (Also i'm not sure sure if the 4.5 times they receive is taxed)

Peregrinus

ted1 wrote: »

Many people do have life assurance that covers x amount in case of death.
if i die i know that the mortgage will be cleared, that that then leaves the second policy of 4.5 times my policy for my Wife and kids to live on.

The two policies serve different needs. (Also i'm not sure sure if the 4.5 times they receive is taxed)

The mortgage protection insurance is pretty cheap, since it's declining balance - it only covers the amount outstanding on your mortgage which, as you grow older (and therefore at more risk of death) goes down. So even if you're not required by the bank to have it it's generally a very good idea (unless you are massively wealthy, or have an underwriting problem like the OP's friend). If you die before your time, it's a really, really good idea that your spouse and children shouldn't have to worry about whether they can afford to continue living in their home.

Payout from insurance that you buy out of your after-tax income is tax-free. This applies to mortgage protection insurance and "regular" term life insurance alike.

spaceHopper

Bank could report him to the credit rating bureau, lets say in five years he want's to move and goes to a different bank to get a mortgage, his credit rating will be screwed! He's never going to get a loan again

Peregrinus

spaceHopper wrote: »

Bank could report him to the credit rating bureau, lets say in five years he want's to move and goes to a different bank to get a mortgage, his credit rating will be screwed! He's never going to get a loan again

No, I don't think so. The only thing that effects your credit rating is being in default on payments. As long as the bank chooses not to call in the loan (which they could do) then all the borrower has to do is keep making the scheduled repayments of interest and principal, and there will be nothing to affect his credit rating.

If they treat him as being in default for having breached his obligation to maintain mortgage protection insurance, that will be reported to the credit rating bureau. But, frankly, in that situation the effect on his credit rating would be the least of his problems.

iainBB

spaceHopper wrote: »

Bank could report him to the credit rating bureau, lets say in five years he want's to move and goes to a different bank to get a mortgage, his credit rating will be screwed! He's never going to get a loan again

i don't think that is correct, that bureau only records bad loans such as none payment, late payments etc. i am sure they can not put you on it for not have insurance.

antoinolachtnai

If what you say is true, your friend has committed loan fraud.

If insurance would be very expensive due to medical issues, then it is not a legal requirement.

iainBB

antoinolachtnai wrote: »

If what you say is true, your friend has committed loan fraud.

If insurance would be very expensive due to medical issues, then it is not a legal requirement.

He has cancelled his insurance so the fraud is less relevant.

Perhaps not a legal requirement but a condition of the loan agreement. i.e. mortgage protection insurance = no mortgage.

CreepingDeath

A few months ago I switched my life insurance policy to another provider but forgot to inform the EBS.

They copped that the original policy had been cancelled, and started sending letters saying that if I wouldn't take out life insurance in X days, that they would take out a policy and bill me for it.

I had a valid policy, I just had to send them the letter of indemnity from the new provider.

But that's one way the OPs mortgage provider could've went.

iainBB

CreepingDeath wrote: »

A few months ago I switched my life insurance policy to another provider but forgot to inform the EBS.

They copped that the original policy had been cancelled, and started sending letters saying that if I wouldn't take out life insurance in X days, that they would take out a policy and bill me for it.

I had a valid policy, I just had to send them the letter of indemnity from the new provider.

But that's one way the OPs mortgage provider could've went.

That is interesting alright. but can the really bill you for a policy they have on your life? . I guess they may add the price of the policy onto your mortgage but not sure if they have the power to do that either.
They would have to fill out the forms of your medical information without your consent and most likely be incorrect

ted1

Peregrinus wrote: »

The mortgage protection insurance is pretty cheap, since it's declining balance - it only covers the amount outstanding on your mortgage which, as you grow older (and therefore at more risk of death) goes down. So even if you're not required by the bank to have it it's generally a very good idea (unless you are massively wealthy, or have an underwriting problem like the OP's friend). If you die before your time, it's a really, really good idea that your spouse and children shouldn't have to worry about whether they can afford to continue living in their home.

Payout from insurance that you buy out of your after-tax income is tax-free. This applies to mortgage protection insurance and "regular" term life insurance alike.

sorry your confusing me there.

I have my policy with Irish Life which is a dual life convertible cover, its 30 a month if either me or my wife dies it pays out the value of the mortgage at the start (it doesn't reduce), then the cover reduces to 15, if the other partner dies it pays out again for the kids. once the mortgage is paid, the policy stays in effect and pays out cash

then I have my life policy at work the covers 4.5 times my salary and if i'm sick etc.


I'm not clear weather you're agreeing, with me, disagreeing etc.

Henry Ford III

ted1 wrote: »

....then I have my life policy at work the covers 4.5 times my salary and if i'm sick etc.

Maximum lump sum death benefit from an occupational scheme is 4 x salary.

Mrs OBumble

micar wrote: »

Crazy to cancel the life cover. God forbid if anything should happen to him. Those left behind would be in left in a bad place.

Decreasing term assurance/mortgage protection is relatively cheap.

It's a risk I would never take.

We cannot know that - for all we know the person may be child-free and single, or may have a partner whose own income would be sufficient for their needs. For someone in that situation, having life-insurance is in fact the crazy option. At most they need mortgage protection in the case of disability.

Personally, I was allowed to not take out mortgage protection insurance when I purchased, because the bank was happy that the mortgage would be more than covered by the sale of the property if I died. This was overseas, where there's no legal requirement for mortgage-protection insurance, but banks usually insist on it.

Here, what I would expect the bank to do is to sell him one of their own policies, and add the cost to his mortgage, or bill his credit card. I'm sure they'd have a provision for this somewhere in their T&Cs.

antoinolachtnai

iainBB wrote: »

He has cancelled his insurance so the fraud is less relevant.

Perhaps not a legal requirement but a condition of the loan agreement. i.e. mortgage protection insurance = no mortgage.

Why is it less relevant? The bank likely would not have advanced the funds if he hadn't been able to secure life insurance.

What difference this makes in practice I do not know but I hope he does not need to seek further credit.

iainBB

antoinolachtnai wrote: »

Why is it less relevant? The bank likely would not have advanced the funds if he hadn't been able to secure life insurance.

What difference this makes in practice I do not know but I hope he does not need to seek further credit.

Further credit from the same bank no but other yes

JimsAlterEgo

iainBB wrote: »

He has cancelled his insurance so the fraud is less relevant.

Perhaps not a legal requirement but a condition of the loan agreement. i.e. mortgage protection insurance = no mortgage.

Fraud is Fraud

iainBB

JimsAlterEgo wrote: »

Fraud is Fraud

of course it is. I don't think any one is saying otherwise.
but the world is not as black and white as your might like to think.

again this topic is about the bank requiring the Insurance and then not doing anything about it when its cancelled.

MarkAnthony

iainBB wrote: »

of course it is. I don't think any one is saying otherwise.
but the world is not as black and white as your might like to think.

again this topic is about the bank requiring the Insurance and then not doing anything about it when its cancelled.

They'll deal with individual idiots on an indivdual basis, I suspect if many people started doing it a few examples would be made.

Peregrinus

ted1 wrote: »

sorry your confusing me there.

I have my policy with Irish Life which is a dual life convertible cover, its 30 a month if either me or my wife dies it pays out the value of the mortgage at the start (it doesn't reduce), then the cover reduces to 15, if the other partner dies it pays out again for the kids. once the mortgage is paid, the policy stays in effect and pays out cash

OK. You have a higher level of insurance there than you require in order simply to cover your mortgage should you die. All the lender requires you to have is a policy which will pay out the outstanding balance of the mortage if you die during the term of the mortgage. As the term progresses, the level of cover declines. If you live to the end of the term, the payout is nil. Such policies are generally pretty cheap.

You have more than that, and presumably you pay more for it. That's not a criticism; it's perfectly fine to have more cover than the minimum required and, should you die, I don't doubt that your dependents will be glad of the extra cover that you have bought.

Peregrinus

iainBB wrote: »

again this topic is about the bank requiring the Insurance and then not doing anything about it when its cancelled.

The fact that they didn't do anything about it when it was cancelled is a pretty clear indicator that, if he had explained his problem and his circumstances at the outset, they wouldn't have required him to pretend to effect insurance. If they were prepared to run the risk once they knew about it a year into the mortgage, that suggests they would have been prepared to run the risk at the time the mortgage was granted.

He didn't have to lie, in other words, or expose himself to the calling-in of his mortgage, and he could have saved a year's premiums.

ted1

Peregrinus wrote: »

OK. You have a higher level of insurance there than you require in order simply to cover your mortgage should you die. All the lender requires you to have is a policy which will pay out the outstanding balance of the mortage if you die during the term of the mortgage. As the term progresses, the level of cover declines. If you live to the end of the term, the payout is nil. Such policies are generally pretty cheap.

You have more than that, and presumably you pay more for it. That's not a criticism; it's perfectly fine to have more cover than the minimum required and, should you die, I don't doubt that your dependents will be glad of the extra cover that you have bought.

Sometimes I'm just afraid she'll push me the stairs ...